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A Look at Applied Materials’ Stock Returns and Valuations

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Stock has declined by 29.4% in 2018

Semiconductor (SMH) company Applied Materials (AMAT) was on a bull run between September 2015 and March 2018. The stock rose from $14.64 in September 2015 to $60.12 in March this year.

Applied Materials stock is down 15% in October. The stock has lost over 35% in 2018. AMAT stock was impacted by the company’s third-quarter 2018 results (year ending in October). While the company beat the earnings and revenue consensus, the stock slipped on poor guidance.

Applied Materials expects revenue of $4 billion with EPS of $0.96 in Q4 2018, which is more than 10% lower than Wall Street revenue estimates of $4.5 billion and EPS projections of $1.17.

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Revenue and earnings estimates

The ongoing trade war and the earnings cliff have impacted several semiconductor stocks. In addition to Applied Materials, stocks such as Jabil (JBL), NXP Semiconductors (NXPI), and ON Semiconductors (ON) are also trading close to their 52-week lows. AMAT is expected to post record sales of  $17.25 billion, an increase of 18.6%, in fiscal 2018. EPS is also estimated to rise 37% in 2018. However, the company’s sales might decline by 1.1% in 2019 with an EPS fall of 4.7%.

Applied Materials has a forward 2018 price-to-earnings ratio of 10.9x. Thus, it might seem like the stock is undervalued given the revenue growth rate.

Analyst outlook

Out of 21 analysts covering AMAT, 20 have recommended a “buy” for the stock, one has recommended a “hold,” and none have recommended a “sell.” Their average 12-month target estimate for the stock is $58.86, indicating that AMAT is trading at a significant discount of 79.5% to analysts’ target estimates.

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